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Germany: economy hits the brakes

Seeking job protection: Tens of thousands of people gather around Berlin’s landmark the Victory Column on Saturday . The demonstration is one in a series of four European demonstrations to defend jobs.

Kate Connolly

Berlin: A single headline captured reaction to the news that Germany’s economy had delivered its worst performance since unification in 1990: “The revenge of Germany’s export dependency.”

Europe’s largest economy and the world’s largest exporter — still slightly ahead of China — has seen its industrial orders and production plunge this year in a worldwide drop in demand for everything from its cars to its solar panels.

But nobody predicted that Germany’s gross domestic product (GDP) would fall by 3.8 per cent in a quarter, which marks not only the biggest decline since comparable records began in 1970, but, year on year, amounts to an even steeper drop of 6.7 per cent. It is the worst result of any eurozone country, as summed up in another headline: “Once the motor of Europe’s economy, Germany is now its brake block.”

This year should have been a year of celebrations: the 20th anniversary of the fall of the Berlin Wall, the 60th anniversary of the founding of modern Germany. Instead, the country is stuck in its worst recession since the war.

A pattern across almost all industries — from car manufacturers to metal production, the hospitality industry and producers of solar energy products — has seen factories cutting back on production and workers forced to reduce their hours. Companies have been cutting back on investment, reducing prices and ignoring an almost hallowed obligation in Germany by refusing to take on apprentices.

The backbone of German manufacturing, the car industry, has cut production by a third, with Mercedes experiencing a drop in sales of 25 per cent and Porsche of 19 per cent.

As yet — unlike in Britain and the U.S. — the recession has barely made itself felt on the high street. Credit in Germany is viewed by many ordinary people as something of a dirty word and many rent so the property market does not dominate the economy. In fact, a slight rise in private and state consumption has ensured that the GDP drop was not bigger.

That, experts say, has to do with wage rises in recent years and the re-introduction of the Pendler Pauschal — a tax rebate for commuters. The impact of the rise in unemployment has also been softened by an increase in part-time jobs and the introduction of the Abwrackpramie — or old banger bonus. Under the scheme, consumers can trade in their old cars and receive a payment towards a new model.

Though the Abwrackpramie has helped boost domestic demand by about 19 per cent and provided something of a feel-good factor, experts say it will bring little more than a short-term boost. The country, they say, is facing an even bigger shock next year.

“After the export recession there will be a recession in the domestic economy,” said Johannes Muller, an analyst with the asset-management company DWS. The drop in exports will have an impact on unemployment, which is expected to rise from the current 3.6 million to beyond 4 million.

Already the number of Germans out of work, along with the tax shortfalls and two stimulus packages worth €80 billion, have helped blow a €316-billion hole in the budget for the next four years and led to heated debates five months before a general election about whether Germany’s social market economy model — which seeks a balance between private enterprise and state intervention — has failed.